Excerpt:.....act - whether plaintiff entitled to redeem mortgage - high court by order of adjudication vested insolvent's property in official assignee - under section 17 effect of order of adjudication is that property of insolvent wherever situated shall vest in official assignee and shall become divisible among creditors - vesting property in official assignee is to make him legal owner of right, title and interest of insolvent's property and property ceases to be that of insolvent - held, plaintiff not entitled to maintain suit for redemption.
- - 7. the learned counsel for the appellant places strong reliance on the decision in sarvaraiyudu v. in the above case the insolvent had failed to disclose his ownership to an item of property in the schedule of assets and after the..........usufructuary mortgage ex. a-1 dated 29-6-1915. one kuppuswami iyengar usufructuarily mortgaged the suit property under ex. a-1 to one varadachariar, the defendant's father. in pursuance of the mortgage the said varadachariar and after his death the defendant was in possession of the property. kuppuswami iyengar, the mortgagor sold the equity of redemption to the plaintiff's husband under a sale deed ex. a-2 dated 20-3-1919. the plaintiff's husband however was adjudicated insolvent in i. p. 454 of 1929. the said adjudication was annulled under ex. b-1 dated 17-8-1953, but the court directed the continuance of the vesting of the property in the official assignee. subsequently the insolvent died and his wife has filed the suit for redemption of the mortgage. the plaintiff claimed that she.....

Judgment:

1. This second appeal filed by the appellant-plaintiff arises out of a suit for redemption of a usufructuary mortgage Ex. A-1 dated 29-6-1915. One Kuppuswami Iyengar usufructuarily mortgaged the suit property under Ex. A-1 to one Varadachariar, the defendant's father. In pursuance of the mortgage the said Varadachariar and after his death the defendant was in possession of the property. Kuppuswami Iyengar, the mortgagor sold the equity of redemption to the plaintiff's husband under a sale deed Ex. A-2 dated 20-3-1919. The plaintiff's husband however was adjudicated insolvent in I. P. 454 of 1929. The said adjudication was annulled under Ex. B-1 dated 17-8-1953, but the court directed the continuance of the vesting of the property in the Official Assignee. Subsequently the insolvent died and his wife has filed the suit for redemption of the mortgage. The plaintiff claimed that she and her predecessors-in-interest are agriculturists entitled to the benefit of Madras Act 4 of 1938 and that the mortgage debt has therefore been wiped out under Section 9-A of the said Act.

2. The suit was resisted by the defendant contending that the equity of redemption continued to vest in the Official Assignee as per the order Ex. B-1 in I. P. No. 454 of 1929 on the file of the High Court, that, therefore, the plaintiff has no right to redeem the mortgage and recover possession. The defendant also pleaded that he has acquired title by adverse possession. He also denied that the plaintiff is entitled to the benefit of Section 9-A of Madras Act 4 of 1938.

3. The Trial Court decreed the suit holding that the plaintiff had certainly a right to sue for redemption and possession, that it was always open to the Official Receiver to get back possession from the plaintiff, if she succeeds, in this case, that the mortgage debt has not been wiped out under Section 9-A of Madras Act 4 of 1938 as the plaintiff has not shown to be entitled to the benefits of that Act, and that the defendant has not perfected title to the suit property by adverse possession.

4. On appeal, however, the Lower Appellate Court took the view that the plaintiff is not entitled to redeem the mortgage in view of the order of the High Court in Ex. B-1 in I. P. No. 454 of 1929 vesting the insolvent's property in the Official Assignee. In this appeal the plaintiff challenges the correctness of the view taken by the Lower Appellate Court. Therefore, the only point that arises for consideration is as to whether the plaintiff is entitled to redeem the usufructuary mortgage, Ex. A-1.

5. The reasoning of the Trial Court on this point is this:

'As the Official Receiver did not take any action in the matter and has not intervened so far, the plaintiff certainly has got the right to sue for redemption and possession. It is always open to the Official Receiver to get back possession from the plaintiff, if the succeeds in this case. It is difficult to accept the contention that when the property is vested in the Official Assignee, the insolvent looses all his interest therein.'

The Lower Appellate Court, however, expressed:--

'In this case there is no evidence before us to show that the Official Assignee abandoned the administration of the estate. Had it been shown that the Official Assignee had abandoned the estate it would have been a reason for the insolvent to revert to the estate For, when once a debtor's estate vests in the Official Assignee, the debtor has no interest in that estate'.

Under Section 17 of the Presidency Towns Insolvency Act the effect of an order of adjudication is that the property of the insolvent wherever situate shall vest in the Official Assignee and shall become divisible among his creditors. Section 21 of the Act enables the Court to annul the adjudication either on its own motion or on application made by the Official Assignee or any creditor. Section 23 provides that where an adjudication is annulled the property of the debtor who was adjudged insolvent shall vest in such person as the court may appoint, or in default of any such appointment, shall revert to the debtor to the extent of his right or interest therein on such terms and subject to such conditions, if any, as the Court may declare by order. In this case, the court while ordering annulment had specifically directed the continuance of the vesting of the property in a Official Assignee. Section 33 imposes a duty on the insolvent to give an inventory of his properties, a list of his creditors and debtors and of the debts due to and from them and generally do all such acts and things in relation to his property and the distribution of the proceeds amongst his creditors as may be required by the Official Assignee or as directed by the court. In this case, in view of the specific order of the court at the time of the annulment to vest the property in the Official Assignee, neither the insolvent nor the plaintiff as his legal representative could claim that the property is revested in them, unless there is any subsequent order of court directing the revesting of the same on the insolvent or his legal representative. The mere fact that the Official Assignee has not taken steps to redeem the mortgage will not enable either the insolvent or his legal representative to redeem the mortgage. It is pointed out that in the schedule of assets filed by the insolvent he did not indicate the equity of redemption in relation to the suit property and therefore, the equity of redemption could not be said to have vested in the Official Assignee. But the non-disclosure of the equity of redemption in the schedule of assets by the insolvent will not affect the legal vesting of the insolvent's property in the Official Assignee, and it has to be taken that all the properties of the insolvent whether referred to in the schedule of assets or not should be deemed to have vested in the Official Assignee as a result of the order of adjudication under Section 17. The mere inaction on the part of the Official Assignee in the realization of the insolvent's properties will not result in revesting of the properties in the insolvent; nor can there be a revesting on the ground ofd the so-called abandonment of the right by the Official Assignee. Once there is a statutory vesting of the insolvent's property in the Official Assignee, unless there is a revesting order by the Court, it will continue to vest in the Official Assignee and there is no question of the property coming back to the insolvent or his heirs by any inaction or abandonment on the part of the Official Assignee.

6. In Subbaraya Chettiar v. Papathi Ammal, 7 MLW 516 AIR 1918 Mad 294, it was held that an undischarged insolvent has no right to sue for the recovery of property which is vested in the Official Receiver, that the Official Receiver is the only person competent to sue for enforcing the right to property possessed by an insolvent, and that upon an order of adjudication the property of the insolvent ipso facto vests in the Official Receiver and no right in relation thereto remains in the insolvent. In that case it was contended for the insolvent that inasmuch as the residue of the estate after administration would be returned to him there remained vested in him an interest in the property, and that, therefore, he is entitled to bring the suit with the permission of the Official Receiver. That contention was rejected by the Court on the ground that when the property becomes vested in the Official Receiver the insolvent must ipso facto be divested of the same, and can have no vested interest in the property until it is restored to him after administration.

In Vijiarangam Naidu v. Narayanappa : AIR1946Mad371 a mortgagor was adjudicated insolvent, and pending the insolvency, the mortgagee brought a suit on the mortgagee, obtained a decree and brought the property to sale, but before the sale was confirmed, the insolvent obtained his discharge and sold that property to the plaintiff subject to the encumbrance. The Official Assignee filed a petition for setting aside that sale on the ground that the property was still vested in him. It was held by Bell, J. that on the order of discharge the property sold did not automatically revest in the insolvent and so he had no right to sell the same without the permission of the Official Assignee. The learned Judge cited with approval the following passage from the decision in Tarakdas Dhar v. Santosh Kumar Malik, ILR (1937) Cal 386 :--

'It is very difficult to see how it can rightly be contended that once a particular item of property has vested in the Official Assignee by virtue of the operation of Section 17 of the Presidency Towns Insolvency Act that property can become re-vested in the insolvent without any other action on the part of the Official Assignee save an expression of opinion that the property is of no value and that he does not propose to do anything in the way of attempting to make the property available for the creditors of the insolvent and that accordingly he is abandoning the property. Mr. Page, I think, realized the difficulty which confronted him in endeavoring to persuade us to accept the view that in law there can be such an abandonment of incorporeal or immovable property by the Official Assignee as to bring it about that it becomes automatically or by some sort of metaphysical process, as it were, re-vested in the insolvent either during the currency of his insolvency or after his discharge'.

Kalichand Banerjee v. Jagannath Marwari was a case where certain mortgaged property had vested in the Official Receiver under Sec. 16 of the Provincial Insolvency Act and the mortgagees brought a suit for foreclosure without making the receiver a defendant. The Judicial Committee held that as the insolvent's estate has vested in the Official Receiver any decision rendered in those proceedings will not bind the equity of redemption which has vested in the Official Receiver.

7. The learned counsel for the appellant places strong reliance on the decision in Sarvaraiyudu v. Kondalarayudu : AIR1961AP219 as supporting the view taken by the Trial Court that as a result of the abandonment of the right to redeem by the Official Assignee, the plaintiff can maintain the suit for redemption. In the above case the insolvent had failed to disclose his ownership to an item of property in the schedule of assets and after the annulment of his insolvency, he filed a suit for recovery of that property from a third party on the ground of trespass. The question arose whether the suit was maintainable. The Court expressed the view that the main object of vesting of the insolvent's property in the Official Receiver being to realize the assets and distribute the proceeds among the creditors, if the Official Receiver closes or abandons the administration and no creditor opposes such a course, the vesting order must be deemed to have worked itself out and the residue of the estate would naturally revert to the insolvent even without a specific order for revesting it, and that, in any event, the recovery of his property by the insolvent from a wrong doer would not be against the policy of the Insolvency Act and the doctrine that the vesting order divested the insolvent of all properties would not be a just ground for refusing the recovery. In that case the court specifically found that the administration was either abandoned or closed by the Official Receiver long before the suit and that the vesting order was allowed to work itself out, and on the basis of these findings the court held the suit to be maintainable. This case referred with approval the decision in 7 MLW 516 AIR 1918 Mad 294 but, however, chose to hold that the vesting order was allowed to work itself out by abandonment or closure of the administration by the Official Receiver long before the filing of the suit. With due respect, I am not in a position to see how a vesting order could work itself out in the manner contemplated by the learned Judges in that case. If the administration had been closed by the Official Assignee after all the creditors had been paid in full, the remaining property could be deemed to have revested in the insolvent in view of Section 76, even without a specific order to that effect either by the court or Official Assignee. But where the Official Assignee abandons the administration, he will be neglecting the statutory duties imposed on him under Sections 58 and 69 for the realization and distribution of the insolvent's property, and he will be answerable to the Insolvency Court for such conduct. Section 61 suggests that the vesting is not personal to the Official Assignee for the time being but is to continue irrespective of the question as to who is the incumbent in the office of the Official Assignee. It is not, therefore, possible to say that by acting in a manner contrary to the provisions of the Act, the Official Assignee could revest the property in the insolvent. It is well established that the effect of vesting a property in the Official Assignee is to make the Official Assignee the legal owner of the right, title and interest of the insolvent in the property. As a result of the vesting, the property ceases to be that of the insolvent who is divested of his rights with respect to the same and becomes the property of the Official Assignee. As has been held in Ramagopal Naicker v. Muthukrishna Iyer : AIR1957Mad1 the effect of vesting order is that so far as the properties are concerned, the insolvent completely goes out of the picture and his ownership therein ceases and the property becomes fully vested in the Official Assignee. It is no doubt true that the effect of annulment of the adjudication was to bring about the state of affairs as if there had never been an adjudication. That will be the position if the court passes an order of unconditional annulment. But if the court, as in this case, passed a conditional order of annulment vesting the property in the Official Assignee notwithstanding the annulment, it cannot be said that there is a complete annulment of the adjudication. In the event of an unconditional order of annulment, the insolvent is restored to the position as he was before the adjudication, both in relation to his creditors and with reference to his properties. But if the annulment is made conditional on the insolvent's property vesting in the Official Assignee, it is not possible to say that the insolvent is restored to the position as he was with reference to his properties. In this case the court has ordered annulment but directed the vesting of the property in the Official Assignee. By virtue of such vesting of the insolvent's property in the Official Assignee the effect of insolvency are wiped out only partly and not completely. I am, therefore, of the opinion that, in view of the specific order of the court directing the continuance of the property of the insolvent in the Official Assignee, it will not be open to the Official Assignee to abandon or close the administration of the insolvent's estate except as provided in the Act, having the result of revesting the property to the insolvent. In any event, the lower court having specifically found that there is no evidence of abandonment of the closure of the administration of the insolvent's estate by the Official Assignee in this case, the decision in : AIR1961AP219 cannot apply.

8. As a result of the foregoing discussion, I find that the plaintiff is not entitled to maintain the suit for redemption, and it is only the Official Assignee in whom the equity of redemption had vested who can sue for the said relief. The second appeal is therefore, dismissed, but without costs. No leave.